Best Online Brokers for Small Investors and Beginners 2017

Investing for the first time is a lot like taking that plunge into a new activity – you are intimidated by everything you think you don’t know and you don’t want to appear clumsy in front of others. With the plethora of online brokerages, the opportunities for first-time investors are wide open. However, this wide variety of investment options means you do need to be educated before you begin. You don’t want to put your money in the wrong hands when you start to invest.

Keith McGurrin, Certified Financial Planner and a lead financial planner at T. Rowe Price has some tips for newcomers.

“Investing has the potential to build funding for long-term goals,” McGurrin said. “But, investing can also be risky, especially in the short-term. Having a plan can help – here are considerations for investors starting out.”

Assess readiness to invest: Since there is a possibility to lose part or all of an investment, starting from a strong financial foundation is important. Do you have money in a safe account to support your needs in case of an emergency (3-6 months’ worth of expenses)? Would you be better off paying down an outstanding debt rather than investing this money? If eligible, are you already contributing to a tax-deferred retirement plan? Will you be able to add to your investments on an ongoing basis?

Watch the costs: High costs can lower investment returns. Costs might include trade charges, account fees and the costs of the underlying investments such as fund management fees. Taxes can be another cost of investing. An effective strategy to lower costs and taxes over time can be to buy and hold and avoid unnecessary short-term trading.

Research the risks: The research capabilities available through a brokerage platform should help in understanding the risks of various investment opportunities. Generally, but not always, investments with the potential for higher reward also come with a higher risk of loss. Can you hold on to an investment if it begins to lose value?

Diversify: Spreading money across different investments can provide an effective way to manage risk. A mutual fund, for example, can provide effective diversification. Does your investment portfolio rely on the prospects of a single company, industry or investing style?

Best Online Brokers for New Investors 2017

We’ve compiled a chart of some of the most well known and best reviewed online brokerages for new investors:

Betterment

As you invest money into your account, Betterment automatically purchases exchange traded funds (ETFs) on your behalf, based on your previously set asset allocation. There are no trade or transfer fees. Betterment charges a 0.25% to 0.50% annual fee, depending on your desire to be connected to a team of financial experts. The plus brokerage account features an annual call with licensed financial experts and requires a $100,000 minimum balance. In exchange for a $250,000 minimum balance, the premium account offers unlimited calls with CFPs and financial advisors.

Trade King

This broker provides a unique combination of investment and trading tools and services, along with some of the lowest trading fees in the industry, and generally no required account minimums. TradeKing was the first online broker to have an online trading network to connect with other investors and has tools like its Trade Note to help you make investment decisions. The broker also has a live chat feature to get answers to your investment questions immediately.

Scottrade

Scottrade is for investors who want to be able to invest in individual stocks with an online discount broker but have many of the same benefits you’d get working with a full-service broker. The broker has a variety of online trading and investing tools, such as Scottrade Streaming Quotes, to get market data fast. Scottrade will also refund account transfer fees up to $100 when transferring an account worth $10,000 or more from another broker to Scottrade.

TD Ameritrade

A leader in the industry, TD Ameritrade offers a wide array of investments that are suitable for new and experienced investors alike. This broker is better suited for long-term investors than to active traders. TD Ameritrade’s web platform provides free access to independent third-party research and financial news. There is no initial deposit requirement and it offers more than 100 commission-free ETFs.

Motif Investing

While it stands to be a powerful investing tool, Motif is not for beginners as “motifs” are groupings of stocks that are based on a single idea. Users can trade stocks and ETFs in bundles of up to 30, each based on the specific theme, idea, sector, industry or trend. Motif offers investors customized portfolios built in seconds. There is the option for automated trading and rebalancing via a monthly subscription with Motif BLUE, with subscriptions between $4.95 and $19.95 per month depending on the number of motifs you would like to auto-invest.

Charles Schwab

Charles Schwab offers a lower fee for online equity trades compared to its major competitors. It also offers a Satisfaction Guarantee where investors will have eligible fees refunded if they are not satisfied. There is no fee to open an individual or joint brokerage account and accounts are free of maintenance fees. Investors can expect no transaction fees per executed trade for Mutual Fund OneSource Funds for online trades and no commission fees per trade for Schwab ETF OneSource for online trades.

Is there a reason that Robinhood was left off this list? The fact that you can trade without any commission fees is pretty phenomenal. While they don’t allow you to access ETFs, the no fee trading is unmatched (unless I’m unfamiliar with another no fee brokerage?).

I have been very happy with betterment. So far over the last year I have had an average gain of 9.5%. It is pretty straight forward and from all my research follows a pretty good algorithm. It is a perfect set and forget for me knowing that I don’t have to constantly monitor it and attempt to make my own rebalancing decisions.

I find it great for buy and hold strategies as there are no purchasing commissions for ETFs (except the ECN fees) and their standard fees apply for sales. No other fees apart from the management fees of what you are buying unless you are below the 5k$ threshold (verified once a quarter) in your account.

There is no automatic reallocation of assets; this has to be done manually when purchasing but the interface for doing so is super simple. For Canadians, all the information needed to calculate Adjusted Cost Base is provided.

Surprised to not see Vanguard on this list. If you read Warren Buffet’s latest Berkshire Hathaway report, the Vanguard S&P500 fund is the one he recommends and is one that has delivered an over 80% compounded return in just under 10 years.

The critical element of any broker for me has to be the fees, the lower the better. Fees eat into an investor return more than many imagine. To that extent, I think Betterment looks the best out of the brokers listed here.

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My name is J.D. Roth. I started Get Rich Slowly in 2006 to document my personal journey as I dug out of debt. Then I shared while I learned to save and invest. Twelve years later, I've managed to reach early retirement! I'm here to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you get rich slowly. Read more.

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